How to Design an Effective Compensation System to Drive Results in Your Organization

Results, no matter how they are defined, are vital to the success of any organization. Company executives and boards of directors struggle all the time with designing the right compensation system that is affordable, is competitive, drives accountability and rewards the right behaviors. Everyone tries to find that magic "compensation bullet" because management knows that employees, regardless of their level, want to be paid appropriately. Whether we like it or not, compensation does play a part in motivating our employees.

With this in mind, if you want an effective compensation system, here are a few things you must do.

Define what you mean by "results": Is it customer service, new accounts, top-line sales, net income, EBIDA or just plain effort?

Outline a compensation philosophy: Do you want a competitive program? Whom do you compete against for people and what are their salaries? Should pay practices be at the 50th or 75th percentile?

Determine the need for incentives: Sales incentives, annual management incentives, long-term incentives, stock options, and restricted stock. The list can go on and on. Will payouts be monthly, quarterly, annually or deferred?

Analyze the financial impact: What is the cost of your compensation system? Will the results pay for the programs you put in place?

Communicate to your employees: Communication is one of the key success factors for any compensation system. Use the KISS method ("Keep it simple, stupid"), whenever possible. If employees do not understand the plan, "results" as you have defined them will not be achieved.

It is hard to explain in this newsletter the detail that exists in all of the above steps. Our hope is these steps point you in the right direction in designing a compensation system that delivers the results you need for your business. If you need additional assistance with your compensation systems, please contact me and we will be glad to help.

Challenges in Transformation: Aligning Business Processes with Strategy

As you think about your challenges for 2012, it's highly likely that you will need to transform your business to be able to compete now and in the future.

As companies experience changes in their products, services, markets or customers, it is important that their business processes align with their overall strategy. Leaders need to analyze their organization's capability to deliver on the strategy both in the short-, mid- and long-term.

No business will be a success unless it has two critical elements: a sound business strategy and the right people with the right skills and competencies to achieve your strategies.

Whether your organization is an established business or start up, public, not-for-profit or family-owned, there must be a seamless connection between the business strategy and the organization's capability driven by a sound human capital or people strategy.